IMF looking at Sri Lanka options, fiscal consolidation key: IMF

Nov 04, 2015 (LBO) – Sri Lanka’s government has expressed interest in a IMF-supported program as one option to address balance of payments pressures, the resident representative of the IMF told Lanka Business Online.

“IMF staff is considering options for Sri Lanka, which would depend on our assessment of macroeconomic vulnerabilities, the nature and size of balance of payments needs, and government policies to address these vulnerabilities,” Eteri Kvintradze, the resident representative of the IMF, said in emailed comments.

“However, we have not formally entered into program negotiations,” she said.

Prime Minister Ranil Wickremesinghe said in Parliament recently that Sri Lanka will consider support from the IMF as a matter of prudence due to a difficult international economic environment.

“Sri Lanka faces tighter external financing conditions, slower-than-expected recovery in Europe, rebalancing in China, and geopolitical-related economic distress in some trading partners,” Kvintradze said.

“Domestic macroeconomic policies are also an issue.”

The budget announced for 2016 has proposals to formalize the economy and widen the tax base, which according to the finance minister would pay dividends over the medium term.

“The IMF has emphasized the need for steps to reestablish fiscal consolidation and reduce public debt—mainly by expenditure restraint and such revenue reforms as eliminating tax exemptions.”

Kvintradze said IMF staff has some concerns with the proposed 2016 budget, which does not envisage significant consolidation relative to the expected outturn for 2015.